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foundations of economics

Questions and Answers of Foundations Of Economics

2 If the net baht received from the Thailand operation are invested in Thailand, how will UK operations be affected? (Assume that Blades is currently paying 10% on pounds borrowed and needs more
1 One point of concern for you is that there is a trade-off between the higher interest rates in Thailand and the delayed conversion of baht into pounds. Explain what this means.As a financial
27 From Appendix 3, calculate the percentage changes(returns on a period by period basis) between any two major currencies for a ten year period on a rolling basis. You may choose the length of the
26 From Appendix 3, compare the return and the risk of investing in the NYSE with investing in the London Stock Exchange for a UK investor. Evaluate the significance of your results.You will need a
25 From Appendix 3, imagine that you are a UK investor, construct an international portfolio of shares. Is the standard deviation of your international portfolio greater or less than an equivalent
24 Market information on the internet. Use your own institution’s currency database or visit http://www.oanda.com/convert/fxhistory, to obtain exchange rate data covering at least one year, copy
23 Interest rates. Why do interest rates vary among countries? Why are interest rates normally similar for those European countries that use the euro as their currency?Offer a reason why the
22 International financial markets. Carrefour the French Supermarket chain has established retail outlets worldwide. These outlets are massive and contain products purchased locally as well as
21 Effects of September 11. Why do you think the terrorist attack on the United States was expected to cause a decline in US interest rates? Given the expectations for a decline in US interest rates
20 Stock market integration. Bullet plc, a UK firm, is planning to issue new shares on the London Stock Exchange this month. The only decision still to be made is the specific day on which the shares
19 Foreign stock markets. Explain why firms may issue shares in foreign markets. Why might MNCs issue more shares in Europe since the conversion to a single currency in 1999?
18 Foreign exchange. You just came back from Canada, where the Canadian dollar was worth£0.43. You still have C$200 from your trip and could exchange them for pounds at the airport, but the airport
17 Eurocredit loans.a With regard to Eurocredit loans, who are the borrowers?b Why would a bank desire to participate in syndicated Eurocredit loans?c What is LIBOR, and how is it used in the
16 International diversification. Explain how the Asian crisis would have affected the returns to a UK firm investing in the Asian stock markets as a means of international diversification. (See the
15 Evolution of floating rates. Briefly describe the historical developments that led to floating exchange rates as of 1973.
14 International markets. What is the function of the international money markets? Briefly describe the reasons for the development and growth of the European money market. Explain how the
13 Loan rates. Explain the process used by banks in the Eurocredit market to determine the rate to charge on loans.
12 Syndicated loans. Explain how syndicated loans are used in international markets.
11 Cross exchange rate. Assume Poland’s currency(the zloty) is worth £0.17 and the Japanese yen is worth £0.005. What is the cross (implied) rate of the zloty with respect to yen?
10 Indirect exchange rate. If the direct exchange rate of the euro is worth £0.685, what is the indirect rate of the euro?Note that the pound is the home currency.
9 Euro. Explain the foreign exchange situation for countries that use the euro when they engage in international trade among themselves.
8 Forward contract. The Wolfpack Ltd is a UK exporter that invoices its exports to the United States in dollars. If it expects that the dollar will appreciate against the pound in the future, should
7 Bid/ask spread. Compute the bid/ask percentage spread for Mexican peso in which the ask rate is 20.6 New peso to the dollar and the bid rate is 21.5 New peso.
6 Bid/ask spread. Delay Bank’s bid price for US dollars is £0.53 and its ask price is £0.55. What is the bid/ask percentage spread?
5 Bank services. List some of the important characteristics of bank foreign exchange services that MNCs should consider.
4 Exchange rate effects on borrowing. Explain how the appreciation of the Japanese yen against the UK pound would affect the return to a UK firm that borrowed Japanese yen and used the proceeds for a
3 Exchange rate effects on investing. Explain how the appreciation of the Australian dollar against the euro would affect the return to a French firm that invested in an Australian money market
2 Motives for providing credit in foreign markets.Explain why some financial institutions prefer to provide credit in financial markets outside their own country.
1 Motives for investing in foreign money markets.Explain why an MNC may invest funds in a financial market outside its own country.
3 Briefly explain how MNCs can make use of each international financial market described in this chapter.
2 Cloudy Bank quotes an ask rate of £0.12 for the Peruvian currency (new sol) and a bid rate of £0.09.Determine the bid/ask percentage spread. Briefly give reasons for the difference with Q1.
1 Sunny Bank quotes a bid rate of £0.58 for the US dollar and an ask rate of £0.60. What is the bid/ask percentage spread?
5 If Blades increases its business in Thailand and experiences serious financial problems, are there any international agencies that the company could approach for loans or other financial
4 How could a continued depreciation of the Thai baht affect Blades? How would it affect Blades relative to UK exporters invoicing their roller blades in British pounds?Ben Holt, the finance director
3 How could a decreasing level of national income in Thailand affect Blades?Ben Holt, the finance director of Blades plc, has decided to counteract the decreasing demand for ‘Speedos’ roller
2 How could competition from firms in Thailand and from UK and European firms conducting business in Thailand affect Blades?Ben Holt, the finance director of Blades plc, has decided to counteract the
1 How could a higher level of inflation in Thailand affect Blades (assume UK inflation remains constant)?Ben Holt, the finance director of Blades plc, has decided to counteract the decreasing demand
16 Using the UNCTAD World Investment Report 2009 or the Forbes lists at http://www.forbes.com/lists/, consult the annual reports of ten large multinational companies and examine their foreign
15 Using the financial data packages at your institution or by consulting the International Monetary Fund Balance of Payments Statistics Yearbook and web references in the chapter, explore further
14 UK balance of trade. Consult the Pink Book 2009 at: http://www.statistics.gov.uk/StatBase/Product.asp?vlnk=1140.a Use this website to assess recent trends in exporting and importing by UK firms.
13 Exchange rate effects on trade.a Explain why a stronger dollar could enlarge the UK balance of trade deficit. Explain why a weaker dollar could affect the UK balance of trade deficit.b It is
12 International investments. In recent years many UK-based MNCs have increased their investments in foreign securities, which are not as susceptible to the negative shocks of the UK market. Also,
11 Free trade. There has been considerable momentum to reduce or remove trade barriers in an effort to achieve ‘free trade’. Yet, one disgruntled executive of an exporting firm stated, ‘Free
10 Effects of tariffs. Assume a simple world in which the United Kingdom exports soft drinks and beer to France and imports wine from France. If the United Kingdom imposes large tariffs on the French
9 Currency effects. When South Korea’s export growth stalled, some South Korean firms suggested that South Korea’s primary export problem was the weakness in the Japanese yen. How would you
8 Effects of the euro. Explain how the euro may affect UK international trade.
7 Demand for imports. Explain why a devaluation may result in a higher total import value. Why do we expect it to be lower?
6 Demand for exports. A relatively small UK balance of trade deficit is commonly attributed to a strong demand for UK exports. What do you think is the underlying reason for the strong demand for UK
5 Exchange rate effect on trade balance. Would the UK balance of trade deficit be larger or smaller if the pound depreciates against all currencies, versus depreciating against some currencies but
4 IMF.a What are some of the major objectives of the IMF?b How is the IMF involved in international trade?
3 Government restrictions. How can government restrictions affect international payments among countries?
2 Inflation effect on trade.a How would a relatively high home inflation rate affect the home country’s current account, other things being equal?b Is a negative current account harmful to a
1 Balance of payments.a What is the current account generally composed of?b What is the financial account generally composed of?
3 Explain how a financial crisis can affect international trade.
2 Explain why UK tariffs may change the composition of UK exports but will not necessarily reduce a UK balance of trade deficit.
1 Briefly explain how changes in various economic factors affect the UK current account balance.
5 The Sports Exports Company has no immediate plans to conduct direct foreign investment. However, it might consider other less costly methods of establishing its business in foreign markets.What
4 How would Jim Logan decide which foreign markets he would attempt to enter? Should he initially focus on one or many foreign markets?In every chapter of this text, some of the key concepts are
3 Does Sports Exports Company have any comparative advantage over potential competitors in foreign countries that could produce and sell basketballs there?In every chapter of this text, some of the
2 Why are the agency costs lower for Sports Exports Company than for most MNCs?In every chapter of this text, some of the key concepts are illustrated with an application to a small sporting goods
1 Is Sports Exports Company a multinational corporation?In every chapter of this text, some of the key concepts are illustrated with an application to a small sporting goods firm that conducts
4 What long-range plans other than establishment of a subsidiary in Thailand are an option for Blades and may be more suitable for the company?Blades plc is a UK-based company that has been
3 Which theories of international business described in this chapter apply to Blades plc in the short run? In the long run?Blades plc is a UK-based company that has been incorporated in the United
2 What are some of the disadvantages Blades could face as a result of foreign trade in the short run? In the long run?Blades plc is a UK-based company that has been incorporated in the United Kingdom
1 What are the advantages Blades could gain from importing from and/or exporting to a foreign country such as Thailand?Blades plc is a UK-based company that has been incorporated in the United
23 Select a firm from the top ten firms from a European country (exclude financial institutions, a list may be found at http://www.forbes.com/lists/ – choose the country option for selection). Go
22 Assessing direct foreign investment trends. The website address of the Bureau of Economic Analysis is http://www.bea.doc.gov.For UK data see
21 Impact of international business on cash flows and risk. Slowman Travel Agency specializes in tours for American tourists. Until recently all of its business was in Switzerland. It has just
20 Valuation of Carrefour’s international business.In addition to all of its stores in France, Carrefour (a real French company) has 24 hypermarkets in Argentina, 85 in Brazil, 27 in Mexico, 41 in
19 Assessing motives for international business.Pliny Inc. (a US fictitious company), specializes in manufacturing some basic parts for sports utility vehicles that are produced and sold in the
18 Valuation of an MNC. Turnip plc (a UK fictitious company), based in Birmingham, considers several international opportunities in Europe that could affect the value of its firm. The valuation of
17 Impact of Eastern European growth. The managers of VGood Corp. (a US fictitious company)recently had a meeting to discuss new opportunities in Europe as a result of the recent integration among
16 International joint venture. Scottish and Newcastle breweries (a real UK company) have joint ventures with United Breweries in India, Chongquin (the fifth largest brewer in China) and Baltic
15 Impact of political risk. Explain why political risk may discourage international business.
14 International business methods. Snyder GmbH a German firm that sells high-quality golf clubs in Europe, wants to expand further by selling the same golf clubs in Brazil.a Describe the tradeoffs
13 Methods used to conduct international business.Durve Ltd desires to penetrate a foreign market with either a licensing agreement with a foreign firm or by acquiring a foreign firm. Explain the
12 Macro versus micro topics. Review the table of contents and indicate whether each of the chapters from Chapter 2 through Chapter 20 has a macro or micro perspective.
11 Impact of the euro on US subsidiaries. Drinkalot Ltd has a French subsidiary that produces wine and exports to various European countries. Explain how the subsidiary’s business may have been
10 Global competition. Explain why more standardized product specifications across countries can increase global competition.
9 Centralization and agency costs. Would the agency problem be more pronounced for an MNC which has its parent company make most major decisions for its foreign subsidiaries, or for an MNC which uses
8 Motives of an MNC. Describe constraints that interfere with an MNC’s objective.
7 Benefits and risks of international business. As an overall review of this chapter, identify possible reasons for growth in international business. Then, list the various disadvantages that may
6 Impact of the euro. Explain how the adoption of the euro as the single currency by European countries could be beneficial to MNCs based in Europe and elsewhere.
5 International opportunities due to the internet.a What factors cause some firms to become more internationalized than others?b Offer your opinion on why the internet may result in more
4 International opportunities.a How does access to international opportunities affect the size of corporations?b Describe a scenario in which the size of a corporation is not affected by access to
3 Imperfect markets.a Explain how the existence of imperfect markets has led to the establishment of subsidiaries in foreign markets.b If perfect markets existed, would wages, prices, and interest
2 Comparative advantage.a Explain how the theory of comparative advantage relates to the need for international business.b Explain how the product cycle theory relates to the growth of an MNC.
1 Agency problems of MNCs.a Explain the agency problem of MNCs.b Why might agency costs be larger for an MNC than for a purely domestic firm?
3 Identify the more obvious risks faced by MNCs that expand internationally.
2 Describe the changes in Europe that have created new opportunities for MNCs.
1 What are typical reasons why MNCs expand internationally?
explain the potential benefits and risks from foreign investing.
explain common complications in optimizing cash flows?
explain the various techniques used to optimize cash flows,
explain the difference in analyzing cash flows from subsidiary perspective and from parent perspective,
describe the major agencies that facilitate international trade with export insurance and/or loan programmes.
explain common trade finance methods.
describe methods of payment for international trade?
illustrate the possible benefits of financing with portfolio of currencies.
explain how MNCs determine whether to use foreign financing

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